TOP NEWS

Wednesday, January 13, 2010

Interview with Steve Adler and Danielle Mead, Biddees

Yesterday, Los Angeles-based Biddees (www.biddees.com) launched a new web site, which combines gift cards, a reverse auction system, and microdonations to nonprofits. We spoke with CEO Steve Adler, and Vice President of Marketing Danielle Mead, about the firm and what it's hoping to do.

What is the site all about?

Steve Adler: It's a reverse auction site that exclusively sells prepaid cards. We use the term prepaid cards, though you might know them better as gift cards. Those cards include cards from Chevron, Visa, MasterCard, Gap, Amazon, and others. We allow consumers to view a card on the site, and they buy a "Little Biddee Thing", which costs 99 cents each, to view a card. So, if they view a card, it costs them 99 cents, but every time you view a card, the price on that auction is reduced by 50 cents. Even if you're the first bidder, you don't lose money on the site, because we already discount the cards before the first bid--and if you do buy it, you make money. For example, if it's a $50 card, and you're the first person to buy it, it's listed at $48.50, but your bid will reduce that to $48.00. On top of that, 15 cents of that bid goes to a nonprofit of your choice. 34 cents of that is going to the company. It's a win-win-win situation. You view the card for 99 cents, and can buy that gift card at a guaranteed discount, it's guaranteed to make you money, and money goes to a nonprofit organization on top of that. It's simple and easy to understand. Right now, we carry 24 of the top searched-for merchants on the Internet, such as Costco, Amazon, iTunes, Visa, MasterCard, and gas cards like Chevron and Exxon. We also have varying card prices, so you can look at a $50 card to up to a $250 card. For example, Chevron has a $50, a $250, and a $100 card.

What's interesting here, and what we looked at coming from Shoes.com, is that there is really no one out there offering consolidation of the prepaid cards in the market. There are some sites where you can sell your cards, and there are some people trying reverse auctions, but they all have limited qualified merchants. We have 24 merchants at this time, with two different values of cards, which means that there are 48 different cards you can purchase at any one time, 24/7. As the site grows, we'll be adding more and more merchants, including both top national retailers, and going down to local merchants.

Where'd the idea come from, and talk about your prior experience at Shoes.com?

Steve Adler: My partner and I and Danielle were all from Shoes.com, which we sold two years ago. During that time period, we had people pitching Internet ideas to us from the left and right. It seems like everyone has a brilliant Internet idea. After eighteen months of constant pitching, I was at my wit's end. I didn't want to hear any more pitches. But, the founder of Biddees, Barry Share, pitched us, in what was the last deal I was ever going to go to. However, as he started to explain his idea for the prepaid card market, it piqued my interest. It wasn't so much about the reverse auction side of it, but because we were coming from Shoes.com, which was partly owned by retailer Famous Footwear, I had good background in retail. Prepaid cards are really starting to change how people are doing transactions. We realized, there's an opening in the market. Prepaid cards have grown into something like a billion dollars to this year, a hundred billion dollar market this year. To put that in perspective, the entire shoe market is only a $50 billion market. We realized there must be a change in how transactions are going on, and as we talked to people, and even as I looked at my two kids, who are 13 and 16 years old--if you grab their wallet, they might have three to five dollars there, but have a bunch of prepaid cards--GameStop cards, an Amex gift card, a Subway card. It just dawned on us, there's a big change in how people are doing transactions, from the retail side. In the brick and mortar world, there are more and more gift cards being sold. However, in the Internet world, we saw that no one had consolidated the prepaid card business, and that there was no place you could get cards on a consistent basis, and no huge variety or selection, either. That's where Shoes.com came together--it was about giving them unlimited stuff, not picking brands--it was giving them unlimited selections and letting the consumer make choices. We thought we could do that with Biddees, as we did with Shoes.com.

What drove you to the reverse auction model and selling gift cards, rather than perhaps a more conventional e-commerce firm like you had done with Shoes.com?

Steve Adler: We were looking for white space. We're actually viewing this as retailing in a much better way, where we are retailing retailers. There are other models out there, and plenty are doing well, but this is the white space where we felt we could really dominate the marketplace.

There's a number of similar sites now around doing decreasing site aucations (Swoopo, etc.) - with complaints that it's easy to spend a lot without actually winning an item. How do you handle that problem?

Daniellle Mead: We did a lot of research on other sites, which usually are reverse auctions or penny auctions. And, we did see lots of customer feedback about those sites, where they complained they weren't getting the quality of goods promised, or felt that the penny auctions were nearly impossible to win. Customers were spending a lot on bids, but weren't able to recoup those costs. So, we look at a lot of them and tried to make the site as consumer friendly as possible. One thing Steve mentioned earlier, is that every consumer is guaranteed a discount. There's no way they can spend more on a bid than the discount they get on the bid. They can either wait for a lower price down the road, or they're free to make a decision to buy the card. We also offer free shipping, which other sites don't offer, both for electronic and physical cards. We've also focused on selection. Other sites don't have a good selection, and with a gift card you really know what you're getting, which is essentially cash. That's unlike if you're bidding on a TV, where you're not exactly sure what features it might have. There's not that kind of question about gift cards.

You've got an experienced team, what are you applying to this venture you've learned from your prior ventures?

Danielle Mead: The main thing we really tried to bring to the product, was focusing on the customer experience--how to provide the best possible usability, selection, but also make it fun. The reverse auction system really makes it more exciting and fun to go shopping, more like eBay use to be at the beginning. It's more than going to a retailer, and adding something to a cart. There's an air of excitement. The other thing we're going to bring here, is the viral nature of the site. We're hoping people will get excited about it, share it with friends, and leverage the social bookmarking and media options. There's lots of potential for this to take off.

Steve Adler: From our background, we've built lots of site to make money. Where it's let's see what we can do best for the shareholders and company. But, what we wanted to do here--and what excited us, the three of us operating the site--is this is a do-good type of thing. The consumer saves money, but the nonprofit part is exciting--they win no matter what. 15 cents of every dollar spent looking at a bid goes to that nonprofit. On Shoes.com, we were restricted by noncompetes for something around 18 months, and during that time period, we were involved in a lot of nonprofit organizations. They are all hurting because of the economy, and it's been hard to get donations. What was clear to us, was that microdonations are where lots of current donations are coming form now. That might be 10 cents, or 15 cents--and this was a perfect vehicle for microdonations. If someone is going to buy a card anyway, we can give them a discount, and also the opportunity to do good with their money. As we increase volumes, this will add up to be very meaningful amounts. So, it was exciting to us personally to be able to build a site that was there to more than just generate money for shareholders and the company.

The nonprofit angle is interesting, why include nonprofits in the model?

Steve Adler: There's a whole history with Barry Shore. He was actually a paraplegic three years ago, and now he's up and walking. But, he was very much involved in nonprofit organizations. When he presented this to us, his feeling was--he really wanted to was a company that does good. From that, we got to the site and said--let's make this something where everyone can win. It's a wonderful thing to go through the financial model, and see that this works, and where we feel good doing it. Where we are at with our business careers, is where can you create a site where everyone wins? As Danielle was talking about, the penny sites and others, based on our research and consumers, are not a great experience. Consumers walk away from them with a pretty crummy experience. On the other hand, we've created a site, where even if you don't buy the gift card, you feel good. It cost you 99 cents to look at the card, but 15 cents of that went to a nonprofit you can choose. It's still a good feeling. We're trying to do our best to make the customer feel great, even just looking at a transaction.

Are those any nonprofits, or is there a list?

Danielle Mead: There's a list of nonprofits on the site we've chosen. We went through and started with some of the big ones--the Special Olympics, MADD, Big Brothers Big Sisters, the American Cancer Society--which we know lots of people would know. One focus as we launch is to partner with other NPOs nationwide and locally, even to local ones like schools. We want to bring more organizations, not only so consumers can choose where they want their money to go, but also because we wanted to create partnerships, where the NPOs can drive traffic to their site, and bring donations back to them.